Pontiac cuts back life insurance, other retirement benefits

The City of Pontiac has cut back on life insurance coverage and two other retiree benefits as it continues to try to reduce its legacy costs.

A letter sent to retirees on Feb. 22 said that the city will provide either $10,000 or $5,000 in life insurance coverage for retirees beginning April 1, depending on their current coverage, with the amount dropping to either $5,000 or $2,500 at age 70.

"(It's) just a flat-out thing we have to do to save money," said Emergency Financial Manager Lou Schimmel.

City Finance Director John Naglick said that as the city privatized departments and services, reducing the number of current, younger employees contributing, the cost of life insurance for the pool of the city's remaining, aging retirees became prohibitive.

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The benefit reduction will save the city $39,400 per month, or $472,800 annually, Naglick said.

Human Resources Director Cathy Square said retirees who were receiving more than $10,000 in life insurance coverage will now receive $10,000, those who were receiving between $5,000 and $10,000 will now receive $5,000, and those receiving $5,000 will continue to have the same amount of coverage.

Additionally, Schimmel has issued two orders that eliminate the practices of paying 50 percent of unused sick leave time to deferred retirees who are applying for retirement and paying retirees as much as $1,920 annually for opting out of the city's health insurance program.

"It was a past practice, a practice that never should have existed," the emergency financial manager said.

Claudia Filler, the president of the City of Pontiac Retired Employees Association, reacted to the benefit cutbacks.

"This whole thing is an outrage. It's another betrayal of the promises that were made to all of us when we retired, and we just are very, very upset about these changes," said Filler, who retired as director of the city's Department of Public Works.

"We're having to pay more than we ever expected to pay, and especially with the life insurance situation. Those of us who are a certain age can't even buy life insurance at any rate, especially at an affordable price. It's just -- when we were working, many of us did not buy life insurance based on the promises that were made to us. It's just another betrayal."

The letter sent to retirees said they can convert their current coverage during the month of April by contacting the Standard Life Insurance Company after April 1 for information on the cost of maintaining current coverage.

Last summer, the retiree group sued the city, Schimmel and Square in U.S. District Court after the city's 87 different health insurance plans with Humana were consolidated to one plan with Blue Cross Blue Shield, and new health care premiums were imposed on retirees.? Those premiums represent the difference between the annual cost to the city of an employee or retirees' health care plan and the state of Michigan's "hard cap" on the cost of public employees' health care benefits. The premiums amount to $91.13 for one covered person per month, $323.79 for two people and $505.71 for three or more covered individuals on the same plan.

The city has also increased deductibles and prescription drug costs, eliminated hearing and optical coverage, reduced dental benefits and ceased paying supplemental benefits for retirees over 65 who are covered by Medicare.

In July 2012, U.S. District Judge Lawrence Zatkoff denied a motion by the retiree group for a preliminary injunction reversing the benefit changes. Zatkoff's decision was appealed to the U.S. Sixth Circuit Court of Appeals, and oral arguments were made in Cincinnati, Ohio in January.

"(The case is) pending before the Sixth Circuit, and we're waiting on a decision," Gibbs said.

A second suit challenging the health care changes was filed last summer by the Police and Fire Retirement System, the pension fund for retired Pontiac police and firefighters, as well as their health care trust.

The case is before Oakland County Circuit Judge Shalina Kumar, who denied a motion for a restraining order blocking the health insurance premiums in July 2012.

Schimmel said more cuts to retiree health insurance could be on the horizon.

"If I can't get any help from them," he said, referring to the Pontiac General Employees Retirement System board, "then I'm going to have to just look at the plan and downsize the plan some more even beyond these things."

The city's largest pension board has voted against studying the possible use of its surplus to pay for retiree health care. The city faces a projected annual structural deficit of $6 million, equal to the yearly cost of retiree health care.

Schimmel, the city's third emergency financial manager, has said he hopes to leave City Hall this spring or summer. Pontiac's finances have been under state control since March 2009.